INVESTORS are ploughing $26.5 billion a year into self-managed superannuation funds, as the rapidly expanding sector puts growing competitive pressure on the rest of the retirement savings industry.
With many super funds struggling to regain investor confidence after the global financial crisis, a new snapshot of the self-managed sector underlines its rapid growth, largely driven by voluntary contributions.
Figures to be published on Wednesday by the Tax Office show that since 2008, the self-managed sector has ballooned by almost a third, with almost $440 billion in assets under management this June.
Member contributions are driving most of the sector's growth, with investors tipping in $17.5 billion a year, more than double the amount contributed by employers.
A key reason for the rapid growth of self-managed super has been its relatively low cost, and the data confirmed the sector's average ratio of expenses to assets had declined steadily between 2008 and last year, from 0.69 per cent to 0.54 per cent.
Analysts say this drop in costs has dragged down average fees across the super industry, however they warn fixed accounting fees mean self-managed funds are only cheaper for balances of at least $300,000.
Another attraction of self-managed super is it gives investors control over where their retirement savings are invested, and this was also reflected in the figures.
Term deposits, cash and Australian shares - all asset classes that are easily accessible to small investors - accounted for about 60 per cent of the sector's assets.
The head of research at Rainmaker, Alex Dunnin, said poor returns in many asset classes had made term deposits look attractive in recent years. However, falling interest rates would provide a growing challenge to the sector.
"Up until recently, if you stuck money in term deposits, you would have been one of the best fund managers in the country," Mr Dunnin said.
The average balance for self-managed funds at June 30 last year was $506,000 - about 17 times greater than the average balance of a regulated fund.
The Minister for Superannuation, Bill Shorten, said self-managed super was a key part of the nation's retirement saving system.
"The SMSF sector is the largest sector of the Australian superannuation industry with about 480,000 funds, holding almost $440 billion in assets," Mr Shorten said.
The bulk of self-managed super fund members were aged 45 or older, but the report also showed increasing growth among people aged between 25 and 44.
The chief executive of the SMSF Professionals' Association of Australia, Andrea Slattery, said there was growing interest in the sector from young people who were self-employed, ran a small business or were senior executives.
"It's not just the older ones. It's a more diverse group that's becoming interested," she said.